About 99% of the companies subject to sales tax in Germany belong to the SME sector. They are therefore the driving force of the German economy. German SMEs have had a first-class reputation for decades. “Made in Germany”, reliable products and high equity ratios have resulted in a high level of acceptance of German companies worldwide.
It all sounds pretty good, doesn’t it? Why should we worry about a supposedly U.S. phenomenon called “disruption” looming on the distant horizon and in the future in the shape of Airbnb, Tesla and Uber? How does disruption affect German SMEs? One thing is certain: disruption and digitization have a decisive impact – not only, but especially on SMEs.
In this article, you’ll learn about the opportunities and new paths for SMEs that come with customer-centric disruption.
In public perception, the evolved german “Mittelstand”(SME) and its management often represent a complete antithesis to disruption. But what actually makes up the Mittelstand with its GmbHs and AGs in the German region and how does the image of digitalization and disruptive developments relate to this?
Mittelstand is the common term used today for small and medium-sized enterprises (SMEs) from the economic sectors of industry, crafts, trade, the service sector and the liberal professions (e.g. architects, tax consultants, etc.).
The distinction from corporate groups and large companies is not always uniform, but is often made, for example, on the basis of the number of employees (e.g. in the manufacturing industry 50 to 499 employees) or the turnover (no more than € 50 million turnover per year).
A disruptive technology is an innovation that represents a radical change and possibly completely displaces existing technologies, products or services from the market. It is not uncommon for disruptive development to stem from novel solutions brought about by digitization.
One example of disruptive developments in the telecommunications industry is the replacement of SMS by the messenger service WhatsApp. While there was a constant increase in text messaging in Germany up to 2012, the figures then plummeted dramatically. The reason for this is the increased user numbers of WhatsApp: While there were only 9.3 million WhatsApp users in Germany in October 2012, this number had already increased to more than 35 million German users by mid-2017.
Christoph Keese, CEO of Axel Springer hy GmbH explains what disruption is in a simplified way at the launch party for turi2 edition5.
However, disruptive changes are by no means limited to telecommunications. As early as 2015, the Global Center for Digital Business Transformation presented a forecast of how disruption through technology will affect various industries one after the other.
Many, perhaps even most, entrepreneurs have long understood that the current complacency in the SME sector is more than dangerous. Resting on past successes allows customer-oriented speedboats of the economy – well-financed startups – to make a significant overtaking move in the slipstream of the SME sector then. This is what is actually already going on at many companies right now in the wake of digital transformation.
The customer image is changing, whether the mid-sized companies want it to or not. Customers are no longer dependent on a single company. They are becoming more enlightened every day and are questioning the various aspects of product or service and related processes, whether B2B or B2C.
Besides the often long enjoyment of past successes and a mostly outdated customer image, digital incompetence accelerates disruption. A lack of digitalization and hardly any agile processes fuel the disadvantages of disruptive developments in SMEs: External market players are chasing the SMEs.
They often get caught up in the allocation of resources. The battle for the digital customer interface is lost when companies put together a “patchwork quilt” instead of a strategically well thought-out portfolio due to the multitude of possible customer communication channels. The danger: SMEs waste their potential and, in the worst case, do away with themselves.
Like all developments, disruptive trends offer risks as well as opportunities. And it is not yet too late. If you think about it and act strategically now, tackle new things and successively optimize existing ones, you will see disruption as a great potential to advance your own company and make it fit for the future. But how do medium-sized companies benefit from disruption – and what can you do in concrete terms? How can your employees contribute profitably?
1. initiate a change in values
Initiate a fundamental value change in your company. Move away from perfectionism, completeness and depth to flexibility, agility and feedback-oriented product development processes. Build the first prototypes as quickly as possible and test them in contact with your customers.
This can be done in person, by phone or, if not possible otherwise, in an email exchange. This is how you will unlock and shape valuable ideas. Based on the customer feedback you will adapt and implement the next loop. This short-cycle and customer-oriented approach will result in products and services that really work.
2. learning digitalization
Invest in the right recruiting and digital training. Show your team what agile, digitalization, innovation, and customer centricity means in the day-to-day doing as well as in the company culture. Integrate each team member by encouraging them to optimize their own area through digital opportunities. The result is that employees can intrinsically and actively shape the change.
3. internet: from enemy to friend
Use the Internet as a functional and partially transparent basis, e.g. for automation, production or other innovative contributions. This will enable you to stand up to the aforementioned speedboats, precisely with the help of the new technological possibilities, including in the area of artificial intelligence. Thanks to digitalization, these technologies are now available to you in a cloud-based, cost-effective and almost infinitely scalable form.
4. rethinking the business model: optimizing processes
Tackle your company and your business model itself. Yes, that’s right, this step is important. Encourage your team to think like a startup that wants to penetrate your market and take market share from you. Based on this, you can decide on your own countermeasures or possibly drive spin-offs in these areas yourself.
5. cooperation between marketing and sales
Focus your sales communication much more on the possibility of demonstrating your market or technology leadership in a way that is comprehensible to prospects and customers. In the process, your two camps of marketing and sales should increasingly become one area that strengthens itself.
6. know your strengths
Be aware of your business model’s core competencies and how these competencies can be used to build a completely new business model in a worst-case scenario. Think about such scenarios proactively and not only when your company is in troubled waters.
There have always been disruptive forces in business and there will continue to be. Just as Facebook as a platform has creatively disrupted the social world, it is also possible that this in turn will also be replaced by the further development and creation of creative intelligence structures.
Medium-sized companies are not defenseless against such developments in the digital age, but can position themselves excellently and agilely through awareness and proactivity and thus use disruption as an opportunity.
A transformation should be approached with a strategy. Individual measures are an option to get employees, the company model and the environment in tune with the coming changes. Nevertheless, it makes sense to keep an eye on the big picture or a central goal.
The original meaning of the word comes from the Latin verb disrumpere, which means to tear, break or smash.
The term first appeared to the general public in a business and entrepreneurial context through Clayton M. Christensen’s book “The Innovator’s Dilemma” in 1997. Clayton Christensen taught at Harvard Business School for many years.
Digital disruption refers to the radical change in markets and business models brought about by digitalization and digital transformation.
Digital disruption describes the development in which existing services, products or business models in markets are replaced by a digital innovation and thus displaced.
Looking to the future, we can expect to see many more disruptions in a globalized and digitally networked age. As a founder and entrepreneur who recognizes trends, acts quickly as a result, and also discards business ideas in order to start again, you can shape industries and markets with such disruptions.
In 2015, the Global Center for Digital Business Transformation, together with the Swiss business school IMD and the IT provider Cisco, published a study entitled „Digital Vortex – How Digital Disruption is Redefining Industries“. The graphic we use in this article is also borrowed from this study. According to the study, the companies that have experience with disruption as pioneers of development – the technology companies – will themselves be most affected by disruption.
They are followed by media, retail and finance.
Disruption first of all describes a process in which an existing technology is replaced by another. This often happens through innovations that satisfy a need better than existing solutions can. They are either cheaper, more convenient or simply simpler. Almost always, however, new providers painfully replace old sectors and industries.
Disruptors usually insert themselves into the existing customer relationship between provider and customer. Then the disruptor buys into the existing service and passes it on to the customer, often at a significantly lower price.
Everyone is inefficient at some point. Disruptions are best targeted at precisely these points. Where customers or previous users are annoyed with the current solution, take a close look. Use this disruptive energy. As a disruptor, you should start at the intersection of the greatest annoyance factor and the highest profit on the customer side. You optimize a “no-brainer deal” for the customer side in particular, solving the biggest pain.
Also check out this video with author and disruption expert Christoph Keese on this.
As a founder and entrepreneur, I experience every day how important customer centricity is for companies.
Integrate the essential customer perspective into your product genesis and marketing processes. That puts horse powers on the street, until it runs.
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